Brazil economy grows 6.8 pct in 3Q before slump

SAO PAULO, Brazil 
Latin America's largest economy expanded at a blistering pace in the third quarter before the global economic slowdown hit hard in October, Brazil's government said Tuesday.

Growth from July to September was 6.8 percent higher than in the same period in 2007, the official IBGE statistics agency said. Overall economic growth for the four quarters ending in September was 6.3 percent.

Strong expansion in agribusiness and construction drove third-quarter growth, but both sectors were hit hard starting in October from severe credit limitations and slumping demand.

The IBGE also revised upward Brazilian gross domestic product growth for 2007, to 5.7 percent from the previously reported 5.4 percent. GDP is the measure of all goods and services produced in Brazil, and is considered the best barometer of the country's economic fitness.

Economists have predicted Brazil will end 2008 with growth of about 5.2 percent. Next year's forecast is for growth to slump to 2.5 percent following a severe slowdown in the fourth quarter, but there are predictions that the forecast may be reduced.

"Recent activity indicators suggest that the economy experienced a sudden and significant loss of momentum over the last couple of months," the Dresdner Kleinwort investment bank said in a note to clients.

The deteriorating economic situation has put pressure on Brazil's central bank to cut the benchmark interest rate of 13.75 at its decision meeting on Wednesday.

Dresdner Kleinwort predicted that the Selic would be left unchanged, but that the bank is likely to cut it next year to spur economic growth.

"There is now little doubt that the global financial crisis is starting to have a debilitating effect on the Brazilian economy," Dresdner Kleinwort said. "We expect this to be reflected in a further downgrading of growth forecasts over the coming weeks."

Finance Minister Guido Mantega said the stronger-than-expected third-quarter result puts Brazil in a better position to weather the global downturn.

Brazilian stocks rose in early trading after the third-quarter result was released, but the benchmark Ibovespa index turned negative in midday trading as investors fretted about the state of the world's economy.

It was down 0.7 percent to 38,037 after registering an 8.3 percent gain during the previous session.